After suffering more than a year of abuse over its role in the financial crisis, the U.S. Federal Reserve is poised to emerge with its powers relatively intact as lawmakers finalize a sweeping overhaul of financial regulations.
With congressional elections looming in November, Democrats in charge of the process say the House and Senate bills are relatively close.
They aim to finish hammering out differences in the two versions by June 24 so President Barack Obama can sign the reforms into law by early July.
On Wednesday, House and Senate negotiators are expected to back away from measures for the Fed that would expose the central bank's monetary policy to scrutiny and make one of its top officials a political appointee.
The Fed has admitted it was too complacent about its oversight duties before the 2007-2009 financial crisis that prompted the worst recession in generations.
While the Fed has endured tongue-lashings from lawmakers who say it is too close to the banks it regulates, much of that anger may have dissipated since Fed Chairman Ben Bernanke sweated through a tense Senate confirmation vote in January.
House Democrats on the reform panel said Tuesday they would drop a provision included in their version of the bill that would have opened the Fed's interest rate policy to congressional audits.
House Democrats also said they would try to defeat an aspect of the Senate bill that would allow the U.S. president, rather than banks, to name the head of the New York Fed.
Both provisions would undermine the bank's independence, Fed officials have argued.
The committee must also resolve disputes about how to limit banks' risky trading activities, how to protect consumers and whether to limit fees on debit-card transactions.
On Tuesday, credit-rating agencies like Moody's and Standard & Poor's dodged a bullet as the committee cut a measure that would have set up a clearinghouse to eliminate perceived conflicts of interest in the ratings industry.
Instead, the committee told regulators to study conflicts of interest that critics say led to overly rosy ratings before the crisis and then take action if they deem it necessary.
Banks are pressing to limit the impact of a proposal that would limit their ability to trade on their own accounts and invest in private equity and hedge funds. But their prospects appear to be dimming.
Banks also appear likely to face some limits on their lucrative swaps-trading operations as Democrats near consensus on a proposal by Senator Blanche Lincoln that would require banks to spin off their operations to a separately capitalized affiliate.
On Wednesday, House Democrats hope to raise the client-care standard for brokers who offer financial advice to the level now followed by investment advisers.
But the provisions dealing with the Fed are likely to attract the greatest interest.
The central bank has already scored several victories as the financial reform effort works its way through Congress.
It fought off a Senate push last month that would have stripped the Fed of its oversight of smaller banks and looks set to emerge as the most powerful financial regulator when reforms are complete.
But the Fed is still likely to see its wings clipped.
While it will not have to reveal its monetary policy deliberations to investigators, the Senate wants a one-time look at the Fed's emergency lending during the crisis.
House Democrats want to broaden that audit to cover regular discount window lending and open market transactions on an ongoing basis, albeit with a three-year lag.
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